Can capitalism save the West? That’s the subject of this week’s conversation with Dalibor Rohac on The Capitalist.
Economic growth is a strategic variable. It’s not just about individual well-being, it’s not just about prosperity, it’s also about the ability of Western democracies to scale up their defence budgets.
His accompanying piece for CapX argues that Nimbys aren’t just a brake on growth – they’re making us all less safe. You can read it in full below.
And this week’s Nimby Watch by James Ball has a classic example – in Bath, the Greens won’t even let a bike lane go through without a fight.
Elsewhere, Damian Pudner argued that it’s time we started counting up the hours the Government taxes us when it adds more red tape. In the week Reform UK announced a plan for huge welfare cuts, Joseph Dinnage applauded the party’s ambition, but asked if voters will be so keen. GCSE results also came out this week, and with Lucy Powell stepping up Labour’s attacks on Michael Gove’s schools reforms, Michael Gray called for the Tories to commit to extending their education revolution.
Wondering who to blame for hosepipe bans? Samuel Williamson defended the record of the water companies and pointed the finger for blocking reservoirs squarely at Ofwat. And Mark Brolin made the case that the Right needs a new politics of optimism to beat Andy Burnham.
Marc Sidwell
Editor, CapX
Nimbyism is now a national security threat
Dalibor Rohac
Britain and America have spent a decade arguing about Nimbyism as if it were a housing problem. It is much bigger than that: our inability to build, in a broad sense, has grown into a source of geopolitical weakness.
The economic argument has been made already. Growth controls add anywhere from 17% to 38% to house prices in the areas that impose them. Litigation over land use has risen for decades, choking off the internal migration that used to make American incomes converge – the Bay Area and the New York tristate area are now losing people.
Britain’s version of the diagnosis, set out in the essay ‘Foundations’, identifies restricted housing supply, runaway energy costs and grotesquely overpriced infrastructure as the three legs of national stagnation.
But the accumulated architecture of veto points does more than just limit the supply of housing. The same forces are slowing down the speed with which increased defence budgets can be converted into capabilities.
A country that cannot build a substation in under a decade cannot credibly promise to surge production in a crisis, and our adversaries know it
After Russia’s invasion of Ukraine, the United States passed five major funding bills for Kyiv, worth some $175 billion, with European governments collectively committing even more. Yet, despite a valiant collective effort, the flow of actual munitions and weapons systems to Ukraine was slow – and replenishing Western stocks has proven even more challenging.
The naval picture is even worse, both in the UK and in the United States. The US Navy has been retiring hulls faster than it commissions them; in 2023 alone it scrapped twenty-four ships without operational replacements, against a Chinese fleet of some 360.
Around 80% of new American warships run over budget, sometimes by 100% or more. Plans for 32 Zumwalt-class destroyers have been torn up; instead, three will be built, at a reported $7bn apiece.
This is no criticism of free markets. American shipbuilding has been protected since 1920 by the Jones Act, on the explicit argument that a domestic industrial base must be preserved for wartime. The result is an industry that has atrophied under protection: General Dynamics last built a Jones Act-eligible ship in 1978, and during Operation Desert Storm just eight of the 281 vessels chartered by Military Sealift Command qualified under the Act.
In its war with Iran, the United States has depleted its stocks of Patriot missiles by 65%, to a mere 1,700, and has used ‘virtually all’ of its high precision HIMARS munitions. Notwithstanding large financial commitments (the Pentagon is planning to spend $120bn on new Patriots), rebuilding those stocks will take years. The famous Lima plant in Ohio can build at most several dozen Abrams tanks a month.
In contrast, during eleven months of 1942, American industry produced more than 8,000 M4A3 Sherman tanks – an average of 729 a month – and over the war turned out 297,000 aircraft and 86,000 tanks.
The difference between the past and the present is not technological – if anything, today’s production lines are better and more efficient than the past ones. We are much wealthier than our forefathers. Yes, the defence industrial base in the United States and the UK (and in Europe) long suffered from weak demand signals as we took advantage of the ‘peace dividend’. But the US defence budget hovered just above 1% of GDP through the late 1930s, yet the industry was somehow able to start churning out military output at scale when it was needed.
Unlike in the past, the US defence base has been consolidated into a small number of massive firms enjoying a cosy relationship with the government, which enables them to pass on costs to the customer. Because the regulatory and other costs of doing business with the Pentagon and with the federal government in general have grown into a formidable barrier to entry, incumbents face little competitive pressure and are tied up in paperwork that would prevent them from acting more nimbly even if they wanted to.
Then there are generic barriers to adding industrial capacity, infrastructure or energy, including prominently the National Environmental Policy Act (NEPA). Environmental impact statements required from projects involving the federal government add an average of five years of delay and frequently end up in litigation. Almost half of all projects undertaken under the CHIPS Act and the Inflation Reduction Act, two of President Biden’s signature pieces of legislation, were delayed by pending reviews and ‘stakeholder’ objections. TSMC’s Arizona fab only proceeded because the Biden administration explicitly exempted semiconductor plants from NEPA altogether.
To be sure, environmental review exists for a reason. But NEPA’s mutation into an instrument of vetocracy is not an isolated one – and oftentimes interacts with effects of other statutes, making it impossible to expand the supply of energy.
Given the more than twofold difference in industrial prices of electricity, Britain’s version of the same set of problems is even worse.
But Yimby campaigners on both sides of the Atlantic are missing the strategic dimension. Energy is not only an input into economic activity at large – it is vital for manufacturing weapons systems, munitions and running shipyards and data centres, on which any Western advantage in artificial intelligence will rest. A grid connection queue is a defence capability queue. A country that cannot build a substation in under a decade cannot credibly promise to surge production in a crisis, and our adversaries know it.
The reforms needed are well-known. What is absent is political will. As awareness grows that we need a step change in our defence readiness, politicians and campaigners need to leverage this to convince the public that it also means we can no longer afford a system that makes building things so hard.
Deterrence is a promise about what you could do if you had to. Britain and America have spent four decades making that promise harder to keep – one reasonable-sounding objection at a time. It is time to change that.
And if you want more…
– Why America’s socialists are winning (Mani Basharzad)
– Don’t force electric cars on drivers (Max Anderson)
– Britain’s chronic forecasting disease (Valentin Boboc)
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We’ll be back on Monday.